FAO’s World Food Day sermon, well balanced with a few blind spots

This is worth a close read for it reflects, in my view, the pull and tug of various opinions and convictions inside the United Nations Food and Agriculture Organization (FAO), the single entity that we rely on the most to inform us about the state of cultivators, what they’re growing in our world, and who isn’t getting enough of those crops as food.

“At the level of individuals, people living on less than US$1.25 a day may need to skip a meal when food prices rise. Farmers are hurt too because they badly need to know the price their crops are going to fetch at harvest time, months away. If high prices are likely they plant more. If low prices are forecast they plant less and cut costs.”

Yes and no. The one-dollar-a-day global poverty line really ought to be done away with. It means nothing at national level and less within countries. Trying to equate real prices and actual consumption (in grams or hundred grams a day) with purchasing power parity-adjusted international dollars is generally a pointless exercise that generates lists and rankings that distract rather than inform. Anyway, the important part of what FAO said here is that when they’re under a certain daily income line, people can’t buy food to eat what they need to. The comment on farmers making decisions based on expected prices is a good one, something that most people miss, assuming that farmers are as interested in food security as academics are – which is quite untrue. For a farming household, sowing a field is a cost, and that cost needs to be more than recouped in order to make the decision to sow a good one.

“Rapid price swings make that calculation much more difficult. Farmers can easily end up producing too much or too little. In stable markets they can make a living. Volatile ones can ruin them while also generally discouraging much-needed investment in agriculture. Recognizing the major threat that food price swings pose to the world’s poorest countries and people, the international community, led by the G20, moved in 2011 to find ways of managing volatility on international food commodity markets. Under the presidency of France’s Nicolas Sarkozy, the world’s 20 largest economies agreed that any strategy directed to that purpose should have the protection of vulnerable countries and groups as its main priority.”

Now here’s the FAO getting to grips with today’s problem. Rapid price swings is what we tend to call volatility – this can be volatility in retail food prices, or in input prices for farmers, or in offtake (purchase at the farm gate or local market) prices of harvested crops. I don’t see any stable markets the FAO is referring to here. Under Europe’s Common Agricultural Policy (CAP) the stability is constructed by coordinating a monstrous array of incentives and subventions – causing instability elsewhere in the world and particularly when that ‘elsewhere’ is importing (under duress) European agri products and processed food. But that’s another though related story.

The idea of “much-needed investment in agriculture” is an ill-defined one. The best investment a farmer can make, so goes an old Indian proverb, is that she walks the soil of her field every day with her bare feet – and that means for the farmer to till her land and come face to face with her natural resources and biodiversity. It is not the sort of investment the ‘market’ can understand. But FAO ought to, especially since it also has a Save And Grow programme aimed at addressing the organic, low input, community side of cultivation. This is an example of the contradictions in this FAO document. The “international community” is a tired and non-existent label, describing nothing while pretending to be collegial. Mediocre editorial writers still use it but no realists do. The G20 statement this time around may be a little less wishy-washy than it was last year, but that is scant comfort to the hungry or to the cultivators of small plots.

“Today’s turbulent commodities markets contrast sharply with the situation that characterized the last 25 years of the twentieth century. Between 1975 and 2000 cereal prices remained substantially stable on a month-to-month basis, although trending downwards over the longer term. For despite rapid population growth – world population doubled between 1960 and 2000 – the Green Revolution launched by Dr Norman Borlaug in the 1960s helped food supply to meet and even exceed demand in many countries, including India, thanks to the work of M. S. Swaminathan, then Director of the Indian Agricultural Research Institute.”

Oh dear. This is one step forward and three back for the FAO. It should not – not – go looking at Green Revolution history in an attempt to encourage beleaguered small farmers and consumers battered by food price inflation. Yes, the Indian Council of Agricultural Research (ICAR) and CIMMYT (the CGIAR International Maize and Wheat Improvement Centre) will establish the Borlaug Institute for South Asia in India. This institute will be at the forefront of the so-called Second Green Revolution in eastern India (and thereafter sub-Saharan and East Africa). The kind of infrastructure demanded by the first Green Revolution by way of irrigation canals, dams with extensive command areas, provision of rural electricity to run pumpsets with, heavily subsidised inorganic fertilisers produced by a monolithic industry closely allied to the petro-chemicals industry and fossil fuel suppliers – all these were overlooked in the rush to raise yield per hectare. We do not want to see that being attempted again with public monies. It is this investment – rather this big fat public money pipe – which kept cereal prices “substantially stable on a month-to-month basis” in what used to be called the First World. It is not possible there now, it is not possible here (Asia and Africa) now. And that’s what FAO should have said, clearly and bluntly.

“In fact there was, in the Western Hemisphere at least, an over-abundance of food, caused in no small part by the generous subsidies which OECD countries paid to their farmers. But the picture today is a very different one. The global market is tight, with supply struggling to keep pace with demand and stocks are at or near historical lows. It is a delicate balance that can easily be upset by shocks such as droughts or floods in key producing regions.”

So it does try to say this, in a push-me-pull-you sort of way, but the truth is there is no delicate balance. Markets do not tolerate delicate balances because investors have no time for such niceties.

“In order to decide how, and how far, we can manage volatile food prices we need to be clear about why, in the space of a few years, a world food market offering stability and low prices became a turbulent marketplace battered by sudden price spikes and troughs.”

Hear, hear.

“The seeds of today’s volatility were sown last century when decision-makers failed to grasp that the production boom then enjoyed by many countries might not last forever and that continuing investment was needed in research, technology, equipment and infrastructure. In the 30 years from 1980 to date the share of official development assistance which OECD countries earmarked for agriculture dropped 43 percent. Continued under-funding of agriculture by rich and poor countries alike is probably the main single cause of the problems we face today.”

Why does the FAO continue stubbornly to see “investment” as an output of only, and exclusively, national agricultural research systems that are in the vast majority of countries government departments with little real connection to growers and household consumers, or are adjuncts of industrial agriculture multinationals? The seeds of volatility (FAO’s pun, not mine) were planted when commodity exchanges invented commodity futures in collusion with banks and investment consulting companies – production booms were not, in the ecological economics framework of measuring things, booms of any kind, nor were they seen in many countries other than the subvention-drunk OECD of the 1970s and 1980s. In this para, FAO has blundered clumsily by now apportioining some blame to “continued under-funding” while having already mentioned the “generous subsidies” years in the West.

“Contributing to today’s tight markets is rapid economic growth in emerging economies, which means more people are eating more meat and dairy produce with the need for feedgrains increasing rapidly as a result. Global trade in soymeal, the world’s leading protein feed for animals, has grown 67 percent over the past 10 years.”

Hear, hear. Type 2 diabetes and the burden of non-communicable diseases (see the WHO’s recent campaign) have also increased dramatically as a result of the wanton carpet-bombing of “emerging economies” (another revolting label) by the food-agbiotech-retail MNCs.

“Population growth, with almost 80 million new mouths to feed every year, is another important element. Population pressure is compounded by the erratic and often extreme meteorological phenomena produced by global warming and climate change. A further contributing factor may be the recent entry of institutional investors with very large sums of money into food commodity futures markets. There is evidence to suggest that food prices may have surged partly as a result of speculation. But there is considerable debate over the issue.”

Yes and no. FAO is right about the impact of population growth, about climate change (it has an enormous amount of documentation on the subject), about institutional investors and how they distort prices and about food speculation and its effects on street prices. There is plenty of evidence. There is not “considerable debate”, unless the FAO thinks that the angry bleatings of bankers to the contrary is some sort of debate. If so, it should consult its fellow UN agency, the United Nations Conference on Trade and Development (UNCTAD), which this year released a study titled ‘Price Formation in Financialized Commodity Markets: The Role of Information’. The UNCTAD experts who wrote this paper concluded that the commodities market isn’t functioning properly, or at least not the way a market is supposed to function in economic models, where prices are shaped by supply and demand. But the activities of financial participants, according to the study, “drive commodity prices away from levels justified by market fundamentals”. This leads to massively distorted prices, which are not influenced by real factors but by the expectation that economic developments will improve or worsen.

“Lastly, distortive agricultural and protectionist trade policies bear a significant part of the blame. In addition, with agriculture now substantially part of the wider energy market, any shock to the latter – such as unrest in a producing country – can have immediate repercussions on food prices. Responding to food price volatility therefore involves two different kinds of measures. The first group addresses volatility itself, aiming to reduce price swings through specific interventions while the other seeks to mitigate the negative effects of price swings on countries and individuals. One measure frequently invoked under the first heading is the setting up of an internationally held food stock able to intervene on markets to stabilize prices. But FAO’s view is that such a stock would be of dubious value, as well as expensive and difficult to operate. Also, government intervention in food markets discourages the private sector and hinders competition.”

Again the FAO push-me-pull-you is at work here, but the premier food agency has made some important points. The connection between agriculture and energy is one – and that means biofuels, which has a para to itself in the FAO document. Conflict is also brought in as a factor affecting prices – in how many food-producing and exporting countries is there now war or armed conflict? The idea of ‘strategic food reserves’ – which countries in South-east Asia and in the Persian Gulf region are pursuing – has been given short shrift, rightly in my view. But once again the FAO makes a tired attempt to placate the pro-WTO groups by bemoaning protectionist trade policies – which in WTO-speak means no barriers to entry for OECD food products anywhere so that all that accumulated legacy subsidy can pay back a little. Not acceptable, FAO folks. And to round off the contradictory para, the FAO statement again criticises “government intervention” as hindering competition. Governments have to serve their citizens according to constitutions and charters – these are internal matters and this is where sovereignty and self-determination come before market. Better believe it FAO. At least, for now.